Investing in Stock: Common Sense Analysis Part 4
Don't invest in anything trendy
As I may have mentioned before, I am in the business of giving advice to other businesses so I see a lot of businesses. The "trendy" businesses I see either do either extremely well or completely flame out in months. There doesn't seem to be a middle ground. If you are in technology, you basically have 2-3 years at the very most to make it or you are done (someone has better technology, the market has moved to another application or the venture capitalists are chasing the new darlings on the street- as a sidenote, yes I dislike most tech companies as investments, can't you tell?). For every trendy business that does well, I see 5 that do not.
Not great odds eh?
In comparison, the businesses that do well tend to be in tried and true industries (real estate, import/export, distribution). For the risk takers, there are small cap stocks in each of these industries so just because you invest in these industries doesn't mean you are in for a boring ride.
Let me relay one war story for you: venture capitalists invest in risky businesses with the hope they become big- in other words, they invest in trendy businesses hoping to capitalize on the trend. Most venture capitalists will tell you that for every 10 businesses they invest in their return on investment is as follows:
As I may have mentioned before, I am in the business of giving advice to other businesses so I see a lot of businesses. The "trendy" businesses I see either do either extremely well or completely flame out in months. There doesn't seem to be a middle ground. If you are in technology, you basically have 2-3 years at the very most to make it or you are done (someone has better technology, the market has moved to another application or the venture capitalists are chasing the new darlings on the street- as a sidenote, yes I dislike most tech companies as investments, can't you tell?). For every trendy business that does well, I see 5 that do not.
Not great odds eh?
In comparison, the businesses that do well tend to be in tried and true industries (real estate, import/export, distribution). For the risk takers, there are small cap stocks in each of these industries so just because you invest in these industries doesn't mean you are in for a boring ride.
Let me relay one war story for you: venture capitalists invest in risky businesses with the hope they become big- in other words, they invest in trendy businesses hoping to capitalize on the trend. Most venture capitalists will tell you that for every 10 businesses they invest in their return on investment is as follows:
- 1-2 successes
- 3-4 "living dead"- the businesses make enough money to repay the loan and that's it
- Everything else is a failure
Labels: Investment strategy
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